IT Upgrades And Order Completions Will Improve Efficiency In 2025

Key Takeaways

• Clean Earth's enhanced volume growth and common IT platform are projected to significantly improve EBITDA, impacting revenue and profit margins positively.
  
• Improvements and strategic spending in various segments are set to boost free cash flow and efficiency, positively affecting earnings and net margins.
  
• Harsco faces challenges from weak steel production, execution issues, currency impacts, and sluggish growth, potentially affecting revenue and profit margins across segments.

Catalysts

Provides environmental solutions for industrial and specialty waste streams in the United States and internationally.

• Clean Earth is expected to achieve a double-digit EBITDA improvement in 2025, driven by enhanced volume growth from an expanded pipeline and a common IT platform, likely positively impacting revenue and profit margins.
  
• Harsco Environmental is seeing improved free cash flow due to capital efficiency and equipment maintenance practices, which is projected to stabilize at $75 million to $90 million annually in 2025, enhancing overall cash flow.
  
• Completion of engineered-to-order contracts in Harsco Rail is set to boost free cash flow significantly, with expectations of $150 million by 2027, enhancing earnings and cash flow.
  
• Rail segment leadership improvements and discontinuation of engineer-to-order contracts promise a healthier cash flow and a projected EBITDA improvement to $35 million-$40 million, which is positive for overall earnings.
  
• Strategic capital spending in Clean Earth to drive growth opportunities, and reinforced IT systems and facility improvements aim to increase efficiency, potentially improving net margins and driving revenue growth.

Enviri Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Enviri's revenue will grow by 1.7% annually over the next 3 years.
• Analysts are not forecasting that Enviri will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Enviri's profit margin will increase from -5.3% to the average US Commercial Services industry of 6.1% in 3 years.
• If Enviri's profit margin were to converge on the industry average, you could expect earnings to reach $151.1 million (and earnings per share of $1.89) by about April 2028, up from $-124.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.4x on those 2028 earnings, up from -3.9x today. This future PE is lower than the current PE for the US Commercial Services industry at 28.2x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Enviri Future Earnings Per Share Growth

Risks

• Harsco Environmental is facing challenges due to weak global steel production and low-priced Chinese steel flooding the market, which could impact the revenue and earnings from this segment.
  
• Harsco Rail is dealing with execution issues on engineered-to-order contracts and supply chain disruptions, leading to significant negative cash flow and impacting overall net margins.
  
• The strong U.S. dollar is negatively affecting Harsco Environmental's performance, leading to lower revenue and adjusted EBITDA, which could continue if currency conditions persist.
  
• The potential site closures and reduced production in the global steel industry could continue to challenge Harsco Environmental's revenue and profit margins if conditions do not improve.
  
• Clean Earth's volume growth has been sluggish, and despite anticipated improvements, any failure to achieve expected volume growth could hinder revenue forecasts and margin expansion in that segment.

Valuation

• The analysts have a consensus price target of $14.167 for Enviri based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $7.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $151.1 million, and it would be trading on a PE ratio of 10.4x, assuming you use a discount rate of 11.4%.
• Given the current share price of $6.09, the analyst price target of $14.17 is 57.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.